Flexible energy system building blocks...The increased use of renewable energy sources (RES) as well as the increase of en-ergy efficiency is crucial for the achievement of climate

Julia Michaelis, Wolfgang Eichhammer, Simon Marwitz,

Martin Wietschel

Flexible energy system building blocks

Reader for the participants of: Transregional Workshop on Solar

Power Plants, 12th of October 2016, Abu Dhabi

Hosted by: BMUB with support of GIZ

Fraunhofer Institute for Systems and Innovation Research ISI

Contact:

Wolfgang Eichhammer

Fraunhofer Institute for Systems and Innovation Research ISI

Breslauer Straße 48

76139 Karlsruhe

E-Mail: [email protected]

Karlsruhe, Germany, September 2016

Lot 2: Flexible energy system building blocks 1

Table of contents

1 Introduction .......................................................................................................... 3

2 Overview of flexibility options in a future electricity system ............................ 4

2.1 Reasons for increasing flexibility need ........................................................ 4

2.2 Options for increasing flexibility in electricity markets ................................. 5

2.3 Non-technical “enablers for flexibility” ......................................................... 8

3 Common flexibility elements but tailored solutions........................................ 10

4 Building blocks for a flexible and cost efficient renewable energy-based system ..................................................................................................... 16

4.1 Contribution of RES to the provision of flexibility ....................................... 16

4.2 Fossil-fuelled plants .................................................................................. 18 4.2.1 Coal-fired power plants ................................................................. 19 4.2.2 Gas-fired power plants .................................................................. 19

4.3 Electricity grid ........................................................................................... 20 4.3.1 Technical description of electricity grids ........................................ 21 4.3.2 Centralised and decentralised electrical energy systems .............. 21 4.3.3 Options for increasing the flexibility within the electricity grid ......... 22 4.3.4 The effects of stronger grid connection within the

DESERTEC project ....................................................................... 23

4.4 Electricity Storage .................................................................................... 26 4.4.1 Classification of storage types ....................................................... 26 4.4.2 Need for and services of energy storage ....................................... 28

4.5 Demand Side Management (DSM) ........................................................... 30 4.5.1 DSM potential of different sectors ................................................. 30 4.5.2 DSM potential ............................................................................... 32 4.5.3 DSM incentive concepts ................................................................ 34

5 Market design as an important non-technical flexibility “enabler .................. 36

5.1 Support schemes for RES ........................................................................ 36

5.2 Market design options for a flexible energy system .................................. 37

6 Summary and Conclusions ............................................................................... 39

Literature .................................................................... Fehler! Textmarke nicht definiert.

Annex 1 ..................................................................................................................... 45

Overview of installed and planned RES capacities worldwide .............................. 45 Economical performance of different RES types .................................................. 47



1 Introduction

In 2015, the Paris Agreement showed that nations worldwide consider it necessary to

combat climate change. The central aim is to keep the global rise in temperature this

century below 2 degrees Celsius above the pre-industrial level (see United Nations

(2016)). The Conference of the Parties acknowledges enhanced deployment of renew-

able energy, especially in African countries.

The increased use of renewable energy sources (RES) as well as the increase of en-

ergy efficiency is crucial for the achievement of climate targets. But in 2013, electricity

production worldwide was composed as follows: 67 % fossil fuels (coal, gas, oil), 11 %

nuclear, 16 % hydro and 6 % other renewables (see IEA (2015)). To meet the '2ºC ob-

jective', much more capacities of RES must be installed.

The expansion of RES means transforming the whole energy system. The operation of

fossil power plants is reliable and electricity output can be widely adapted to electricity

demand. In contrast, the electricity production by photovoltaic and wind plants, which

will in many markets be the dominant RES technologies, is dependent on weather con-

ditions which can change quickly. As consequence, two different situations can occur

on a local or central level:

1. RES feed-in exceeds electricity demand other electricity producers have

to limit their output and/or consumers should increase their demand

2. RES feed-in is below electricity demand other electricity producers have

to increase their generation and/or consumers should limit their demand

This shows that future energy systems must offer flexibility which can be realized on

both the production and the demand side. New flexible technologies and concepts are

needed in order to match fluctuating electricity production and variable electricity de-

mand.

This report provides in Chapter 2 an overview of flexibility options in a future electricity

system. In Chapter 3 we show that while this options are common to the countries, they

have to develop country-tailored solutions. In Chapter 4 we discuss the different build-

ing blocks for flexibility more in detail. Chapter 5 analysis the organisation of electricity

markets as an essential basis to develop country-tailored solutions. In Chapter 6 we

summarise the findings and conclusions.


2 Overview of flexibility options in a future electric-ity system

The increasing share of RES in an energy system leads to a change of the hourly elec-

tricity production pattern. If electricity production is based on wind and solar radiation,

the result is more fluctuation in electricity production which has to be balanced. This

chapter gives an overview of different flexibility options that are suited to increase the

flexibility of the energy system.

Before the different flexibility options are discussed, the meaning of flexibility has to be

specified. According to Papaefthymiou et al. (2014) power system flexibility is defined

as follows: “Power systems are designed to ensure a spatial and temporal balancing of

generation and consumption at all times. Power system flexibility represents the extent

to which a power system can adapt electricity generation and consumption as needed

to maintain system stability in a cost-effective manner. Flexibility is the ability of a

power system to maintain continuous service in the face of rapid and large

swings in supply or demand.” (Papaefthymiou et al. (2014), p. 1)

The main reasons for the increasing flexibility need will be presented in the following.

Furthermore, flexibility options and the respective operation purposes are summarized.

2.1 Reasons for increasing flexibility need

In general, a growing share of RES leads to an increase in variation in the hourly elec-

tricity production. However, the extent of the fluctuations and the need for flexibility

depend on the type of RES and on the mix of different RES technologies. Photovoltaic

plants are well suited to electricity production in regions with high levels of solar radia-

tion and the feed-in shows daily and seasonal patterns. Wind feed-in is highly corre-

lated with wind speed and shows most irregular hourly feed-in among the various RES

types. The feed-in of wind and photovoltaic plants is therefore difficult to predict, so the

planning of electricity production in an electricity system depends to a large extent on

feed-in forecasts that should be as precise as possible. But even if forecasts would be

exact, flexible technologies are needed that can be activated for a fast ramp-up or

ramp-down of electricity production or demand. However, there are also RES types

that do not fluctuate. Hydro power is a very common form of renewable energy world-

wide and offers almost constant electricity production (see IEA (2010)). Biomass is well

controllable and is in widespread use today in Europe and North America (see IEA

(2015)). Geothermal and solar thermal power plants combined with storage may allow

also a constant electricity supply. The mix of the different technologies determines the

final resulting electricity production pattern and the need for technologies or concepts

that help to balance the fluctuating production. Fehler! Verweisquelle konnte nicht

gefunden werden.Figure 1 shows an example of the hourly matching between supply

and demand for Germany for one week in 2050 if a high share of RES is assumed.


Figure 1 Hourly electricity production mix in the German electricity system 2050 (RES share 95% in the European power mix) (source: Pfluger et al. (2011))

Besides the fluctuations on the supply side, there is also a variation of hourly electricity

demand. By consequence, not only the supply, but also the demand of electricity are

forecasted and supply and demand must be balanced. For the future, it is expected

new technologies like electric mobility or heat pumps are entering the market and re-

place technologies that are based on fossil fuels. Publications show that this is needed

in order to reach the emission reduction targets (see e.g. European Climate Foundation

(2010)). For the integration of these new electricity consumers, it is important to de-

velop control methods and/or tariffs that help to manage this electricity demand in order

to avoid situations with high peak demand. At the same time, efficiency improvements

lead to a decrease in electricity demand. By consequence, the yearly demand of a re-

gion will change as well as the hourly demand pattern.

2.2 Options for increasing flexibility in electricity markets

Different flexibility options exist that are suited to improve the energy system’s flexibil-

ity. Table 1 lists these options with a short description of the operation purpose.


Table 1 Overview of flexibility options (the chapter links refer to the following chapter where more details are provided on the different options)

Flexibility option (Technical Flexibility “Enablers”)

Operation purpose

RES generation management (4.1)

Adapt the feed-in of RES to the actual demand or grid capacity. One example is curtailing of RES which means limiting the feed-in of RES if it ex-ceeds electricity demand or grid capacity

RES technology mix (4.1) Mix as far as possible complementary RES tech-nologies (limited by the available RES potentials)

Controllable power plants (fossil, bio-mass, solarthermal and geothermal power plants) (4.2)

Provision of electricity during periods with low RES feed-in and fast ramp-up or ramp-down in situations with strong fluctuations of RES feed-in

Extension of grid lines and interconnectors (4.3)

Spatial integration of RES by better connecting countries or regions within a country to increase balancing effects

Storage systems (4.4) Storing electricity if RES feed-in is high and re-conversion into electricity if RES feed-in is low

Demand Side Management (4.5)

Shifting electricity demand of flexible electricity consumers like electric cars, heat pumps etc.

Reducing electricity demand as whole: this re-duces the need for flexibility as it increases automatically the share of flexible dispatch.

Sector coupling (4.5)

Power-to-Heat: Using electricity for heat genera-tion

Power-to-Gas/Fuels/Chemicals: Using electricity for production of hydrogen or carbon-based en-ergy carriers like methanol

Close cooperation on the regional and country level as well as coupled whole-

sale markets and a high level of physical interconnection help to increase balancing

effects (Fraunhofer ISI (2013), Fraunhofer IWES (2015)). Studies show that wind and

solar output is generally much less volatile within big market areas compared to smaller

ones because of balancing effects (Fraunhofer ISI (2013), Fraunhofer IWES (2015)).

Hence, less extreme values occur. Cross-border trading options allow that regions with

high RES feed-in provide electricity for regions with low RES feed-in or different high

RES supply patterns and vice versa.

In this context, grid infrastructure plays also an important role for balancing supply

and demand. In general, a well-developed network helps attain balancing effects and

fewer other flexibility options are needed. However, grid expansion depends on the


distribution of RES plants within the country or region: a centralised system needs in

general more grid capacity on transport level whereas a system with many local RES

plants needs a resilient distribution grid. So, planning of grid and RES expansion influ-

ences each other mutually.

Furthermore, a mix of energy technologies influences the need for flexibility. This

applies to the combination of RES technologies as well as to the mix of fossil power

plants. It depends on the geological and weather conditions of the country which mix of

RES technologies is possible. But in general, challenging situations will occur in a sys-

tem with high shares of RES and they require a fast response from the electrical sys-

tem but also a long-term electricity generation backup if RES feed-in is low due to a

lack of wind or solar radiation. Therefore, it can be assumed that a market specific mix

of different flexibility options covering different time scales will be used in the future.

Demand side management (demand response and demand reduction) as well as

sector coupling completes the spectrum of flexibility options.

Some of the flexibility options require a quick response, so technologies with fast reac-

tion times are needed. However, in other situations, flexibility must be provided during

a long period of time, so flexibility options must show a long operation time and ideally

high efficiency. In Figure 2, flexibility options are arranged by typical operation times.

Furthermore, the direction of the dispatch is specified.

Figure 2 Type of dispatch and typical operation time of flexibility options


A positive dispatch means that demand exceeds supply, so demand has to be lowered

or additional power generation must be offered to maintain system balance. A negative

dispatch means that supply exceeds demand, so electricity production must be lowered

or demand of controllable loads enhanced.

As the fluctuating feed-in of RES can be balanced better within a large market area that

is characterized by different geological and atmospheric conditions, the close collabo-

ration of neighbouring countries offers frequently a highly competitive option for the

provision of flexibility.

It becomes obvious from this discussion that there is not only one option which

is suited to cover the flexibility demand. In most cases, a mix of various options

will be needed to balance supply and demand because situations in the energy

systems will have very different requirements.

2.3 Non-technical “enablers for flexibility”

There are also a variety of non-technical “enablers for flexibility” to be tackled (see

Table 2):

Harmonised energy policies between neighbouring countries can mean

benefits for both partners as they may secure mutually supportive flexibility pro-

vision and thus increase security of supply and system stability.

The flexibility options do not only differ with regard to their operation purpose

and operation time, but also with regard to their suitability for specific locations

and their costs. Thus, a non-discriminatory market design is a good instru-

ment that leaves the choice and combination of the cost-efficient options to the

market, especially because the flexibility options show a potential for develop-

ment that is currently difficult to assess. So, the expansion of RES has to be

accompanied by a market design that supports the use of flexibility options. It

plays an important role in setting up the appropriate framework conditions that

allow a broad use of flexibility options and a non-discriminatory access to the

energy market for all flexibility options. Besides, it has to ensure security of in-

vestment. But market design options can not only influence the investment in

flexible technologies but also promote international trading that increases the

overall system’s flexibility too (see Papaefthymiou et al. (2014)).

Acceptance: the cooperation at policy level has to be accompanied by physi-

cally implementing grid capacity and interconnectors. First experiences show

however, that the expansion of grid lines, power plants and RES finds only little

or no acceptance e.g. in some regions of Germany. Therefore, companies but

also politicians are obliged to involve citizens in this transformation process at

an early stage in terms of communication, discussion panels and participation.

This process should not only target the information of residents and the broad

public, but also involve citizens in the implementation process and take their


considerations seriously. For that reason, very recently, underground cables

have become favourite in Germany despite much higher cost.

Finally, refining the methodologies for forecast and monitor fluctuating

RES reduces projection errors and the need to balancing power.

Table 2 Overview of flexibility support (non-technical flexibility enablers) (the chapter links refer to the following chapter where more details are provided on the different op-tions)

Flexibility support (Non-technical

Flexibility “Enablers”) Operation purpose

Harmonised energy policies

Secures mutually supportive flexibility provision and thus increases security of supply and system stability

Non-discriminatory market design

Leaves the choice and combination of the cost-efficient options to the market, especially be-cause the flexibility options show a potential for development that is currently difficult to assess

Acceptance Involve citizens in the implementation process and take their considerations seriously.

Improved monitoring and forecast methodologies for RES production

Provides more certainty for the expected produc-tion (at least at the short-term level)


3 Common flexibility elements but tailored solu-tions

This chapter has a view at the specific context for different countries in Europe and in

MENA. Though seeking for flexibility options profits best from cooperation among coun-

tries, in particular from the interconnection of neighboring country but also with more

distant regions, there are country specifics to be considered when developing flex-

ibility options. This may concern:

The geographic location of the country with respect to possible cooperation

partners;

The RES technology mix available for a country (technology rich or technology

poor country), taking into account technology cost;

The degree of cooperation with adjacent and more far distant countries, in

particular on interconnections;

The possibility to export large shares of production;

The availability of dispatchable/storable RES;

The availability of demand response and sector coupling options.

Figure 3 to Figure 10 present some specific country contexts (hourly demand and sup-

ply calculated with the EU-MENA energy model ENERTILE

(http://www.enertile.eu/enertile-en/index.php). These cases illustrate the diversity and

constraints countries are phasing, depending much also on the degree of cooperation

with other countries.

The cases are briefly characterized:

Germany (Figure 3 and Figure 4), central and well connected country, “tech-

nology rich”, imports from MENA allowed/not allowed: this country benefits from

a favourable position in the middle of Europe and is well interconnected. There

is a large mix of technologies available (solar, on-shore/off-shore wind, bio en-

ergy). Interconnection reduces the need for storage and the cost.

UK (Figure 5), island, relatively isolated though interconnected, “technology

poor” (wind on/off-shore as the main technologies). Hence the need to curtail

RES in quite some contexts though demand response and sector coupling may

provide additional flexibility.

Spain (Figure 6), southern country at the border of Europe, “technology rich”.

Though the country is in a border region of Europe it can take advantage from

interconnections (exports to France and the remainder of Europe) and technol-

ogy mix. Storage is less required. However, this is subject to the possibility to

export.

Romania (Figure 7), also a southern country at the border of Europe, is howev-

er, “technology poor”. The main focus is on fluctuating PV though hydro assures

http://www.enertile.eu/enertile-en/index.php


some base-load. Given that storage from CSP is no available and other storage

costly, the remaining load may be covered by flexible fossil fuels such as gas.

Norway (Figure 8), a northern country well interconnected with neighbours,

“technology poor” but with high flexible RES share, can act as a net exporter of

RES, stabilizing thus the own electricity system.

Morocco (Figure 9), southern country at the border of Maghreb close to Eu-

rope, “technology rich” (wind on-shore, solar PV, solar CSP), imports from

MENA to Europe allowed (mainly cheap wind energy). Morocco could profit

from exports and dimension the electricity system in such a manner, that the

fluctuations in the own electricity system are limited. N case that Morocco could

not export, the design of the system be quite different and the need for storage

CSP or other storage is large increased (as long as interconnection with the

neighbors is not increased). However, given the position of Morocco at the bor-

der of the Maghreb, this may be more limited.

Saudia Arabia (Figure 10), southern country at the border of MENA far from

Europe (hence little contribution from exports) , “technology poor” (mainly so-

lar). The need for storage is high, hence large contributions from solar CSP.


Figure 3 Matching supply and demand with flexibility (Germany, central and well con-nected country, “technology rich”, imports from MENA allowed, calendar week 10 in 2050) (source: Fraunhofer ISI (2013), ENERTILE www.enertile.eu)

Figure 4 Matching supply and demand with flexibility (Germany, central and well con-nected country, “technology rich”, imports from MENA not allowed, calendar week 42 in 2050) (source: Pfluger et al. (2011), ENERTILE www.enertile.eu)


Figure 5 Matching supply and demand with flexibility (UK, island, relatively isolated though interconnected, “technology poor”, imports from MENA allowed, calendar week 9 in 2050) (source: Fraunhofer ISI (2013), ENERTILE www.enertile.eu)

Figure 6 Matching supply and demand with flexibility (Spain, southern country at the border of Europe, “technology rich”, imports from MENA not allowed, net ex-porter, calendar week 27 in 2050) (source: Pfluger et al. (2011), ENERTILE www.enertile.eu)


Figure 7 Matching supply and demand with flexibility (Romania, southern country at the border of Europe, “technology poor”, imports from MENA not allowed, no net exporter, calendar week 29 in 2050) (source: Pfluger et al. (2011), ENERTILE www.enertile.eu)

Figure 8 Matching supply and demand with flexibility (Norway, northern country well interconnected with neighbours, “technology poor”, high flexible RES share, imports from MENA not allowed, net exporter, calendar week 29 in 2050) (source: Pfluger et al. (2011), ENERTILE www.enertile.eu)


Figure 9 Matching supply and demand with flexibility (Morocco, southern country at the border of Maghreb close to Europe, “technology rich”, exports from MENA to Europe allowed, calendar week 32 in 2050) (source: Fraunhofer ISI (2013), ENERTILE www.enertile.eu)

Figure 10 Matching supply and demand with flexibility (Saudia Arabia, southern coun-try at the border of MENA far from Europe, “technology poor”, exports from MENA to Europe allowed, calendar week 48 in 2050) (source: Fraunhofer ISI (2013), ENER-TILE www.enertile.eu)


4 Building blocks for a flexible and cost efficient renewable energy-based system

This chapter discusses more in detail some of the buildings blocks for a flexible and

cost efficient renewable energy-based system, for which an overview was provided in

the previous chapter.

Technical and economic figures will be compared and benefits and challenges for the

system integration will be pointed out. However, the detailed exemplification in system

approaches is the task of a future work.

4.1 Contribution of RES to the provision of flexibility

A growing share of RES is the main reason for the increasing flexibility need. See An-

nex 1 for an overview of recent developments of RES and their cost.

If RES plants themselves could provide flexibility, this would be a great benefit, espe-

cially for systems with high shares of RES. RES operators can cause a flexible opera-

tion by adjusting the plants’ power production and thus contribute to balancing the sys-

tem generation and load or to congestion management. The technical characteristics of

wind turbines and photovoltaic plants allow a quick reaction to control signals, so they

can be curtailed which means a down regulation within seconds. An up regulation is

also possible and can be realized by limiting the output below the possible feed-in fol-

lowed by a selective increase to the normal level as needed. However, both operations

reduce the overall output of RES, so in general, for economic and climate reasons it is

preferred to use this RES feed-in or at least to store it compared to a down-regulation

of fluctuating feed-in.

Even if the active power control of RES plants is possible from a technical point of

view, there are some challenges with regard to the implementation of control measures

for RES. One limitation is the need for a communication and IT infrastructure between

grid operators and the power plant. Furthermore, regulatory and market conditions

have to be designed in a way that does not impede the use of the RES flexibility poten-

tial. If support schemes exist that remunerate the RES feed-in, the RES plant owner

has no incentive to curtail the power output. More generally, it has to be considered

that the flexibility potential of RES is uncertain as the feed-in of wind and photovoltaic

plants is fluctuating. So, compared to other flexibility options, the provision of flexibility

by RES is more difficult to handle (see Papaefthymiou et al. (2014)). However, it is a

huge benefit if RES plants are well controllable because it may lower the need for other

flexibility options that could be more cost intensive. So, under the precondition that

there is a market design that considers not only feed-in but also curtailment of RES, it

should be analyzed what costs occur for building up an IT-infrastructure for the active

power control of RES plants compared to investments in other flexibility options.


Besides fluctuating RES, biogas offers the possibility to provide flexibility as it can be

ramped up and down within seconds. In general, biogas plants run continuously be-

cause biogas production is a steady process. But in combination with biogas storage,

power generation is less dependent on the biogas production process and can be de-

ferred to hours with a low feed-in of fluctuating RES. Typical storage capacities allow a

production shift of 3 to 6 hours (see Papaefthymiou et al. (2014) for more details). But

in this case too, market conditions have to set incentives for shifting the power output.

In many studies that evaluate the future development of Energy systems, dispatchable

technologies e.g. CSP, gasturbines, biomass, hydro dams are used to cover the de-

mand that cannot be met by the fluctuating RES like wind and photovoltaic (see Zick-

feld et al. (2012)). However, the use of biomass for the power sector depends on the

local potential for biomass and the need for biomass based fuels in the heat, transport

and industrial sector. There is a competition between use of biomass for electricity pro-

duction and other possible uses and from today’s perspective it is expected that bio-

mass will play an important role in the heat and transport sector and a limited role in

the power sector (see Müller et al. (2015) and IRENA (2014)).

A further RES technology that can be used for a controlled provision of electricity is a

concentrated solar thermal power plant. Even if those plants depend on solar radiation,

thermal energy storage can be integrated (e.g. molten salt storage) which allows to

provide electricity during cloud course or night. In contrast to electricity storage, thermal

storage is less cost-intensive. The power output of concentrated solar power plants is

defined by the size of the solar field, storage capacity and the turbine. With regard to

flexibility, solar thermal power plants need one or two hours for a cold start-up and 15

minutes for a hot start-up process. Minimum load amounts to 25% of nominal load and

load changes to 3% of nominal load per minute (see Pitz-Paal and Elsner (2015)).

Compared to values of fossil power plants in Table 3, solar thermal plants show a

higher flexibility potential for some criteria. The development of CSP showed a clear

increase in installed capacities since 2005, but market penetration has been slower

than expected. In the short term, decreasing prices for photovoltaic and wind and un-

certain national energy policies dampen the development of CSP. But in the mid- to

long-term, a steadier growth is expected because of more robust policies and ambi-

tious targets for RES expansion. Furthermore, energy security plays an important role

for countries that lack indigenous fossil fuels or have a rising demand for cheap energy,

mainly due to growth population (see CSP Today (2015)). Additionally, the project DE-

SERTEC analysed the provision of electricity (mainly by CSP) by North African states

for Europe and showed that an intercontinental electricity network can have socio-

economic and cost advantages compared to local production and consumption photo-

voltaic (see Zickfeld et al. (2012)). So, it is assumed that CSP will play an important

role in the future – not only for electricity generation but also for balancing fluctuating

RES feed-in of wind and photovoltaic plants beyond the background of ambitious cli-

mate targets.


4.2 Fossil-fuelled plants

With increasing shares of RES, thermal generation takes the role of back-up capacities

to cover the variability of RES and demand. Fossil-fuelled plants, mainly based on coal,

gas and oil, are controllable to a certain extent and can offer some flexibility to the sys-

tem. However not all types of power plants show the same flexibility potential. The key

criteria listed up in Table 3 help to describe the technical restrictions that limit the flexi-

bility of different types of power plants.

Table 3 Technical and economic parameter of fossil power plants (average values, source: Görner and Sauer (2016); Statista (2016))

Criteria Unit

Steam turbine power plant Gas turbine power plant (300 MW)

Combined-cycle gas turbine plant (600 MW)

Hard coal (600 MW)

Lignite (600 MW)

Oil (300 MW)

Efficiency % 40 37 42 35 55

Minimum load % of nominal power

40 50 15 28 53

Load gradient % of nominal power / min-ute

3 3 4 105 5

Start-up time (cold)

hours 4 4,5 3 0,15 3

Start-up time (hot)

hours 2 2 1 0,15 1

CO2-Emissions

g CO2/kWh 342 410 300 202 202

Specific In-vestment

Mio. EUR/GW 1,500 (2023)

2,100 (2023)

Case specific

375 (2023)

700 (2023)

Specific In-vestment for retrofit of ex-isting plants

Mio. EUR/GW 75 (2023)

70 (2023)

Case specific

Case specific

700 (2023)

Fuel price (2013)

EUR/MWh 11.4 1.6 58.3 28.7 28.7

It becomes clear that gas turbines show the highest load gradients and fastest start-up

times among the considered technologies. Furthermore, they emit a relatively low

amount of CO2 during operation compared to oil and coal. The disadvantage today lies

within the dependence on the fuel price of natural gas which is currently approximately

three times as high as the coal price and a multiple of the lignite price. For this reason,

variable electricity generation costs of gas turbines exceed actually those of coal and

lignite power plants today. However, this may change in the future.


In general, the flexible operation of fossil-fuelled plants means more frequent start-up

procedures and part-load operation which is linked to lower efficiency and higher CO2-

emissions. Furthermore, wear and tear increases and leads to higher maintenance

costs. Power plants that would be built today show a higher flexibility potential than

existing plants of which some are in operation for some decades already. However it is

cost-intensive to replace old by new power plants and in some countries, they lack pub-

lic support for reasons of health or climate protection. Therefore, retrofit measures

could upgrade the flexibility characteristics of existing power plants, decrease minimum

load and increase the controllability. Table 3 shows that especially for hard coal and

lignite, the specific investment for retrofit is much lower than an investment in a new

plant. In the future, especially flexible gas turbines could be a good complement for

RES, in the long term possibly in combination with carbon capture and storage for

avoiding the emission of CO2.

4.2.1 Coal-fired power plants

In the past, hard coal-fired power plants were used for covering the base load which

means that they were under constant operation and rarely shut down. The installations

were optimized with regard to maximum load, nominal efficiency and maximum lifetime

under the constraints that operating costs and CO2 emissions should be minimal. There

was no need for a more flexible operation. In the future, the priorities will change and

the development of power plants has to put a stronger effort on flexibility criteria which

contains the increase of efficiencies in partial load and a better minimum load opera-

tion. The success of coal plants will depend on the ability of finding a technical and

economical optimum that enables an economically viable operation under new market

conditions. In general, there exist some game changers that would accelerate the de-

clining use of coal power plants: high prices for CO2 certificates, regulatory laws on

CO2 limits, missing market incentives for fossil power plants and protracted approval

procedures for new investments. But from today’s perspective it is expected that fossil

power plants play an important role in the short and mid-term but their use will de-

crease in the long term when ambitious RES shares above 80% shall be realized. Dur-

ing the transition period from a fossil based to a RES based energy system, old coal

fired plants could be used as back up capacity. This would mean that they are only

used in situations that show critical security of supply. In this way, CO2 emissions by

coal combustion could be limited, because operating times would be smaller than to-

day, but power plants could be used for maintain the system’s stability. The difficulty

lies within the implementation and design of an appropriate financial remuneration that

has to be paid for the provision of back up capacity.

4.2.2 Gas-fired power plants

Because of their characteristics that show a high flexibility potential, gas-fired power

plants are predestined for offering balancing power. In the technical development, main

goals are the increase of efficiency but also the lowering of minimum load and the inte-


gration of heat storage for combined heat and power plants. They show a high potential

for development. However, the economic efficiency of gas turbines mainly depends on

the gas price, so investments in new gas-fired plants are linked to the gas price and

market incentives. In the past, gas power plants were mainly used for covering peak

(gas turbines) and medium load (combined cycle plants) whereas coal plants were

used to supply electricity for base load. With growing shares of RES, the function of

gas-fired plants changes and consist of the provision of residual load (= demand that

remains after RES feed-in), balancing power, reactive power and frequency stabiliza-

tion for the electricity grid. As gas-fired power plants are able for cold starts, they can

provide electricity very quickly. The new supply tasks place new requirements on exist-

ing power plants in terms of more load changes and start up processes, shorter ramp-

up and ramp-down times, shorter downtimes, a smaller minimum load and higher part

load efficiencies.

Besides the technical characteristics, one main reason that is in favour of the stronger

use of gas-fired power plants is the lower CO2 emission factor compared to coal power

plants. For reaching the climate goals, the use of gas instead of coal for electricity gen-

eration by fossil power plants most likely will play a decisive role.

4.3 Electricity grid

Due to the technological transformation during the last decade, a large number of new

technologies have become available to provide and consume electrical power. Tech-

nologies such as electric vehicles and heat pumps on the demand side but also photo-

voltaic and wind power on the supply side change the way electrical energy is gener-

ated and consumed. All these technologies are connected to electrical grids and trigger

also changes within existing grid infrastructures (see Verzijlbergh 2013). Figure 11 il-

lustrates the structure of the traditional and the future electricity grid.

The increasing share of RES that is installed on a decentralised level leads to reverse

load flows compared to the traditional system. Furthermore, long distances between

RES feed-in and consumers can occur if RES potentials are attractive in areas that are

far away from regions with high demand.

In the following subchapters, the main technical characteristics of electricity grids and

the difference between a centralised and a decentralised approach to organising grids

are described. Following this an overview of available technologies is given which can

be used to achieve a stable and reliable grid operation and which can be part of smart

grids.


Figure 11 Transformation and resulting challenges for the electricity grid (source: Wiet-schel et al. (2010))

4.3.1 Technical description of electricity grids

Electrical grids are described technically by voltages, currents, powers and energy

flows. Additionally, the grid frequency is a crucial technical unit. In contrast to all other

technical grid units the grid frequency is a global unit. In an interconnected grid (e.g.

the European grid) the grid frequency is identical on every part of the network and on

every grid level. It is influenced mainly by big loads and supply units, e.g. big thermal

power plants. In contrast to the grid frequency, voltages and currents are local units

which vary on the grid. For a secure network operation, all units must be kept in a

specified range according to the technical standards.

Furthermore the total demand and supply in one grid region must be equal. Otherwise

if feed-in is higher than demand, the grid frequency rises. If the opposite is the case the

grid frequency drops. In general, supply and demand are balanced out by controlling

both the demand and supply side.

4.3.2 Centralised and decentralised electrical energy systems

In central energy systems electrical energy is primarily generated by big power plants

that are well controllable. The electricity always flows from central plants into the

transmission grid and to a local distribution grid to which the consumers are connected.

As supply and demand must permanently be balanced in electrical grids, the supply


side can be used for this purpose in systems with no or little fluctuating RES power

generation providing the required amount of energy (see Braun 2008).

In contrast to the central approach, electrical energy is also generated on the distribu-

tion grid level in electrical systems with high penetration rates of low scale distributed

energy resources (DER). DERs are often feature-dependent RES like photovoltaic or

wind power. High generation and low demand on the distribution grid level lead to in-

verse power flows, which means that energy flows from the distribution grid to the

transmission grid. This can cause voltage drops in network elements (e.g. power lines,

cables) and specific voltage bounds can be violated. The advantage of decentralised

energy systems is that locally generated electricity can be consumed on-site, so less

electricity transmission is necessary and distribution losses decrease (see Rotering

2011, Bayod-Rújula 2009).

4.3.3 Options for increasing the flexibility within the electricity grid

The cross-border expansion of the grid can mean the spatial sharing of flexible re-

sources. Imbalances within a country can be compensated if grid connections are ex-

panded. At an international level, the cross-border expansion of interconnectors en-

sures an increase in balancing effects as the correlation of feed-in of RES plants low-

ers with increasing distance. This also applies to connections across different coun-

tries. The Power Transfer Capability (PTC) between areas can be increased by a dy-

namic assessment of PTCs or by expanding the network. The PTC is generally defined

in advance, based on forecasts and includes security margins and static line capacity

limits. A dynamic assessment uses more actual data, shorter scheduling periods and

allows reducing the security margins. For network expansions, two technological op-

tions are available: high-voltage alternating current (HVAC) and high-voltage direct

current (HVDC). They can be realized in the form of overhead lines or underground

cables which both have advantages and disadvantages. It therefore depends on which

of these options fits better for a specific application (see Papaefthymiou et al. (2014)).

A large number of new technologies for strengthening electrical grids exist to ensure

a stable and reliable grid operation even if flexibility requirements rise. Which options

are suitable (technically and economically) depends on how the system is organised

(central or decentralised) and the part of the grid which needs to be reinforced. Some

of these options strengthen the grid directly and other options provide flexibility and

therefore decrease the investment required for grid expansion. Conventional grid rein-

forcement is covered by building additional cables, overhead lines and transformers

within power stations. This increases the amount of electricity the grid can transport

and works for all voltage levels. In addition, there are also unconventional grid rein-

forcement approaches that help to handle certain challenging situations. Regulated

Distribution Transformer can be used to control voltages on the local grid level. This is

a cost efficient solution to deal with increased voltages due to inverse power flows in

decentralised grids with high DER penetration rates. On the transmission grid level


high-temperature conductors can be used instead of conventional conductors. This

allows higher operating temperature levels for overhead lines and higher currents

transfers. Power is voltage multiplied by current and therefore higher currents also lead

to higher power and energy flows over the part of the grid where this technology is in-

stalled. Another unconventional reinforcement approach contains flexible alternative

current transmission systems (FACTSs). Power flow control options like FACTS and

Phase-Shifting Transformers can redirect the power through alternative pathways in

specific network points. This approach is primarily used on the transmission grid level.

Nevertheless, Voltage Controlled Distribution Transformers (VCDT) are used in lower

voltage networks and can help to avoid network expansion (Hingorani 1993, Zamora

2001, Bayod-Rújula 2009, Esslinger 2012). However, costs are relatively high and effi-

ciency depends on the characteristics of the system where it is applied (see Pa-

paefthymiou et al. (2014)).

Instead of investing into the grid assets, it is also possible to control demand and

supply of technologies which are connected to the grid and can influence grid

units (voltages, currents, powers and energy flows) in a positive way. As described

above, for a stable grid operation demand and supply must be balanced. This is done

on the transmission grid level to ensure a stable grid frequency. On the distribution grid

level demand and supply should also be balanced to reduce energy losses and to

avoid reverse power flows which lead to high voltages. Inverse power flows can be

avoided by reducing the local supply by DER or by increasing the demand during peri-

ods of high supply in that part of the grid. Vice versa in periods with high demand, flexi-

bility can be provided by either reducing demand or by increasing supply. Additionally,

DERs can be used to stabilise grid voltages. In case of high demand, power flows do

not change directions and this can be solved by reinforcing the grid.

Another possibility is to check if rules such as market regulations or technical stan-

dards for electricity grids can be adapted in order to facilitate a grid operation that

allows the integration of flexible units. In some countries, the liberalisation of energy

markets leads to an unbundling of different actors which in turn can mean that network

operators are not allowed to use energy storage. In this case it should be checked

whether modifying market regulations could help to facilitate the use of flexibility op-

tions. Furthermore, technical grid standards could be extended, provided that con-

nected technologies do not suffer any damage.

4.3.4 The effects of stronger grid connection within the DE-SERTEC project

Within the DESERTEC project, the effects of a stronger grid connection within the

EUMENA region are analysed. The following text within this subchapter is therefore

based on this publication, see Zickfeld et al. (2012). Figure 12 reveals that there is a

good fit of demand, sun and wind in the EUMENA region as a result of complementary

demand and supply conditions in MENA and Europe. While load is higher in winter

than in summer in Europe, the opposite is the case in MENA, where more extreme


weather conditions prevail during the hot summer as opposed to Europe’s cold winter.

Also, while Wind production is higher in winter in Europe, it is stable throughout the

year in MENA. Due to its high Solar yield, MENA is able to provide Europe with the

power it needs during the summer, following the daily demand curve with the help of

the CSP storage.

Figure 12 Daily and seasonal demand and supply in Europe and MENA (source: Zick-

feld et al. (2012))

Two scenarios are compared within the DESERTEC project: the Connected Scenario

examines a power system with full, EUMENA‐wide integration (but a minimum 70%

self‐supply rate has been imposed on a national basis) whereas the Reference Sce-

nario depicts a situation where each region, Europe and MENA, is fully optimized in

itself and without cooperation. Figure 13 shows the resulting grid capacities that are

built if a cost minimisation approach is applied to the EUMENA region for the Con-

nected Scenario. The connections between Maghreb and Iberia, Middle East and Tur-

key as well as between Libya/Egypt and Italy are significantly expanded. This results in

a power exchange of 1.087 TWh (MENA/Europe) and 23 TWh (Europe/MENA)


Figure 13 Generation and interconnector capacity, Connected Scenario (source: Zick-feld et al. (2012))

The results show that a power system based on more than 90% renewable energy is

technically possible and economically viable:

The Connected Scenario saves € 33 bn. per year in system cost for the com-

plete system in scope compared to the Reference Case. For the approx. 1.110

TWh of annual power exchange between MENA and Europe, this amounts to

approx. 30 €/MWh.

MENA acquires an export industry for renewable electricity worth up to € 63 bn.

p.a. – more than all of the current exports of Egypt and Morocco combined.

The marginal cost of carbon emission reductions in the power sector drops by

40% from 192 €/tonne in the Reference Scenario to 113 €/tonne in the Con-

nected Scenario.

Power system integration can thus play a major role in creating a robust and cost effec-

tive pathway towards decarbonization. This lower cost of carbon emission reduction is

achieved through an optimized mix of RES technologies, whereby power from the sun

and wind is produced in the most favorable locations throughout EUMENA. The study

shows that a larger system offers more options to balance the load and the output of

Solar and Wind power plants. Fewer gas peakers for balancing need to be built and

less excess production by RES, i.e. curtailment, occurs.


4.4 Electricity Storage

A major advantage of electricity storage is that it can offer flexibility on the supply and

demand side. The operation of storage is based on fluctuations in the electricity supply

and demand. In general, storage operators purchase electricity during periods of high

RES feed-in and sell it during times of high demand. Energy storage can be applied to

all steps of the energy value chain which is shown in Figure 14. Energy storage is used

to bridge temporal, and in case of gas storage, geographical gaps between the supply

and demand side. By bridging these gaps, energy storage can contribute to realising

more integrated, optimised and flexible energy systems (see Ugarte et al. (2015)).

Figure 14 Energy storage in the energy value chain (source: Ugarte et al. (2015), adapted from Makansi (2008))

4.4.1 Classification of storage types

A broad range of storage technologies that can be differentiated with regard to the fol-

lowing characteristics is in place:

Large scale vs. small scale storage: Large scale storage is mainly used by energy

suppliers that use it e.g. for arbitrage or for optimising the operation of their power plant

portfolio. Exemplary applications for small storage are the optimisation of own con-

sumption at household level, uninterruptible power supply or the use in mobile applica-

tions like electric vehicles.

Long term vs. short term storage: Technologies can be classified by energy and

power characteristics. Some technologies like batteries have a limited storage capacity

and a smaller power input, but they are very efficient and often used on a decentralised


level. Others like pumped hydro or hydrogen storage can store huge amounts of en-

ergy for weeks or even months and show thus a long shifting period, but these storage

types often have higher losses (see Ugarte et al. (2015)). Figure 15 illustrates an over-

view of the classification of storage types.

Figure 15 Comparison of rated power, energy content and charge/discharge time for different storage technologies (source: IEC (2012))

Technical and economic criteria of storage systems differ considerably. Compared to

worldwide developments, in Europe, electrochemical and thermal storage technologies

are currently becoming increasingly important. Thermal storage (e.g. molten salts) is

growing due to the connection to Concentrated Solar Power (CSP) plants, particularly

in Spain. Furthermore, the decentralisation of the electricity supply causes a need for

small-scale storage systems like batteries mainly used for smaller applications that

need a short reaction time. Lithium-Ion and Redox-Flow Batteries record a particular

growth in installed capacities as they have a high potential for technology improvement

and cost reduction (see Ugarte et al. (2015)).

Figure 16 gives an overview of the levelised cost of energy storage for different storage

technologies in 2015 and 2030. For every technology, an individual and suitable appli-

cation process is used and the technical restraints are considered. For the details see

World Energy Council (2016). The technologies with the greatest uncertainties with

regard to today’s costs are most of the batteries and the Power-to-CH4 technology.

This large uncertainty is illustrated by the length of the bar on the chart, and is mainly a

reflection of the uncertainty in the maturity of these technologies. At present, pumped

hydro, thermochemical and flywheel energy storage show the lowest cost for energy

storage. However in 2030 other battery technologies reach a comparable cost to these


technologies e.g. sodium sulfur and lead acid batteries. All technologies show a reduc-

tion in costs, which could be expected to have a significant impact on the total amount

of storage deployed by 2030. The more mature technologies such as pumped hydro

storage show a less significant cost reduction than less mature technologies.

Figure 16 Levelised cost of energy storage (source: World Energy Council (2016))

4.4.2 Need for and services of energy storage

The presented technologies serve a variety of services, so the choice of the most ap-

propriate storage type depends on the structure of the energy system and the specific


operation concept. In centralised systems, large-scale energy storage makes sense for

balancing the feed-in e.g. by large wind offshore parks that are located at the coast.

However a strongly decentralised system with widely distributed RES plants requires

flexibility options like battery storage on a local level. Thus, the need for storage de-

pends always on country specific or regional framework conditions. Furthermore, elec-

tric vehicles can also provide decentralised storage services if an information and

communication infrastructure is built up that allows the control of vehicle charging and

discharging.

The mutual influence of grid expansion and storage is exemplary shown within the DE-

SERTEC project. Scenarios were calculated that analysed the optimal generation mix

of the EU and MENA region if these regions were strongly connected or strictly sepa-

rated. Both scenarios are optimized for minimum system costs and assume a growing

share of RES. Interestingly, in both scenarios no storage is built beyond the existing

hydro storage that is already available or in concrete and advanced development or

under consideration today. The cost optimisation reveals that the use of gas turbines or

the expansion of grid capacities is a more cost-effective solution than the investment in

storage technologies. A sensitivity that assumes very low battery costs of 500 €/kW

leads to a replacement of gas turbines and combined cycle gas turbines by batteries

that enable greater Utility PV production. For more details, see Zickfeld (2012).

However, these analyses mainly focus on the use of energy storage for balancing sup-

ply and demand on a centralised level. But energy storage can provide more services,

e.g. grid frequency regulation and grid stability and batteries can also handle ramping

requirements, reactive power management for voltage control and the short circuit ca-

pability of the grid. The following list shows a classification of services that can be pro-

vided by energy storage and that could improve the cost efficiency of storage business

models. According to Ugarte et al. (2015), five types of storage services can be distin-

guished:

Bulk energy services are provided by operators of central, large-scale and of-

ten long-term storage types that help to stabilize the whole energy system. Bulk

gas storage is used to increase the security of gas supply and electricity stor-

age is often used for price arbitrage and for balancing supply and demand at a

central level.

The integration of RES is supported by storage types both at the centralised

and also at the decentralised level. In this use case, storage is combined with

RES plants and balances the intermittency of the power output and thus causes

a more constant feed-in of RES.

Storage systems that have a short reaction time are well suited to providing an-

cillary services. These services contain frequency regulation, load following,

voltage support in the transmission and distribution systems, black start, spin-

ning reserve, and non-spinning reserve.

As an alternative to grid expansion, energy storage can be used to relieve

temporary congestions in the network and thereby limits the need for in-


vestments in grid strengthening. In this case, storage is applied in a way that

network congestions and overload situations at substations are avoided.

Business models for small scale storage focus increasingly on managing cus-

tomer energy services. They include different use cases, e.g. shifting demand

and reducing peak demand especially for industrial customers, optimizing own

consumption and commercialising RES feed-in for owners of RES plants or en-

suring a more reliable power supply for off-grid customers. In the future, charg-

ing control of electric vehicles could be a further application within this field.

4.5 Demand Side Management (DSM)

DSM offers incentives to shift the times of peak demand to situations with high feed-in

by renewable energy sources. In this section, the flexibility potential of DSM of applica-

tions will be discussed for different sectors and some DSM concepts that vary with re-

gard to the type of incentive will be presented.

4.5.1 DSM potential of different sectors

In general, DSM can be offered by flexible demand processes of different electricity

consumers. A common classification of relevant processes is aligned to the industrial,

residential and tertiary sector, see Table 4. The shift of industrial demand depends on

the specific processes. Some applications like electrolysis, cement and paper mills and

electric arc furnaces show a potential to shift energy requirements of the process in

time. However, it must be ensured that the products’ quality does not deteriorate. The

costs depend mainly on personnel costs and investment in communication devices,

control equipment and on-site storage if needed. In the residential and tertiary sector,

DSM can especially shift the demand for heating and cooling. Furthermore, the timing

of air conditioning or clean products offer a flexibility potential. Even if DSM potentials

are high, the challenges lie within the building of an IT and communication infrastruc-

ture, the public acceptance and the financial incentives (see Boßmann (2015)).

Besides the existing consumers, new electricity based applications like electric cars

offer a future potential for DSM. The controlled charging of electric cars is well suited

for DSM because the cars are expected to consume a huge amount of electricity during

the evening and night hours. Besides charging, vehicle-to-grid could be implemented,

so batteries for electric cars could be discharged and feed electricity back into the grid

during hours when electricity supply is needed. The potential role of electric vehicles as

a DSM option depends mainly on the market success of these cars, financial incentives

and consumers’ acceptance (see Papaefthymiou et al. (2014)).


Table 4 classification of DSM Processes (DR – Demand Response, LR – load reduc-tion, LS – load shift) (source: Boßmann (2015))

Table 5 gives an overview of technical characteristics of DSM applications. It illustrates

that most applications can be controlled very fast but differ with regard to the period of

shifting. Flexible Power-to-Gas and Power-to-Heat processes are included for DSM

because in future energy systems with high RES shares, they could be used for elec-

tricity consumption if an oversupply of electricity occurs. Power-to-Gas means that

electricity is converted into hydrogen or methane and stored or fed into the gas infra-

structure. The process is very flexible, but today investment costs are very high.

Power-to-Heat is less expensive and is highly efficient if heat pumps are used. How-


ever, heat production makes only sense if heat is needed in a specific situation or the

heat has to be stored.

Table 5 Overview on DSM applications (source: Papaefthymiou et al. (2014))

Criteria Industry Residential and tertiary sector

Electric vehicles

Power-to-Gas

Power-to-Heat

Efficiency % 95 - 100 95 - 100 93 60-80 100-300

Reaction time

%/min 20 - 100 100 100 100 100

Maximum period of shifting

hours 1 - 24 1 – 24 single car: few hours

weeks to months

up to 24 hours

Investment - depends, can be low

Approx. 400 € for meter, gate-way and instal-lation

- More than 2.000 €/kw

530 – 2.560 €/kW for heat pumps

Maturity of technology

-

some custom-ers provide already inter-ruptible loads

low experience low ex-perience

high ex-perience with elec-trolysis

high

Barriers -

missing finan-cial incentives; quality losses of products

concerns about data security; missing finan-cial incentives, tariffs and communication infrastructure

missing business models, few vehi-cles to-day

high costs, R&D still needed

too high elec-tricity costs

4.5.2 DSM potential

The availability of most DSM applications strongly depends on the time of day, outdoor

temperature or season. In addition, the duration of interfere and the shifting time are

limited, so the full potential is not available at any time. For estimations on country

level, it is difficult to gather and consider all the data that is necessary to assess the

realistic DSM potential. But often, it is possible to describe the theoretical potential that

gives an indication of what are the most relevant sectors or applications for DSM. It

comprises all facilities and devices of the consumers that are suitable for DSM irre-

spective of the existence of information and communication infrastructure or cost as-

pects.

A study by Gils (2014) gives an overview on the theoretical DSM potential in Europe.

Two key results can be summarized:

1. For load reduction the highest potential can be found in pulp and paper, steel

and cement industry, as well as in commercial ventilation and refrigera-

tors/freezers in retailing and private households, see Figure 17.


Figure 17 Potential for load reduction by consumer in Europe (source: Gils (2014))

2. For load increase, the potential relates almost completely to electric space

heating, storage water boilers and washing equipment, see Figure 18. In the

industrial and tertiary sector technical restrictions impede advancing loads,

thus there is higher potential for load reduction than for load increase.

Figure 18 Potential for load increase by consumer in Europe (source: Gils (2014))

Further results that show the country specific DSM potential reveal that the industry is

the sector with the highest potential in the MENA region. The tertiary and household

sectors have approximately the same potential, see Gils (2014). However, especially in

the MENA region, the electricity use is likely to be reduced in the coming decades in

the framework of energy efficiency efforts and thus diminishes the DSM potential. But

in the transition period, existing units can deliver an important contribution to DSM pro-


grams and even if future processes need less efficiency, they also could become more

flexible and easier to control.

4.5.3 DSM incentive concepts

The incentive for consumers to participate in DSM measures lies within saving costs or

generating profits. Automatization plays an important role in activating DSM potentials

because consumers are probably not willing to manage their demand independently,

so this must be realized by automatic calls of a control unit. DSM options can be de-

ployed at different timescales of electricity system scheduling and can be controlled via

price- or incentive-based mechanisms, see Figure 19. Price-based management use

price variances to stimulate or mitigate consumers’ electricity demand. This procedure

leaves some uncertainty as the intensity of the demand adjustment cannot be predicted

exactly. In the case of incentive-based measures, consumers commit themselves to

adapting their individual load on demand and receive a pre-assigned payment as com-

pensation. So, the calculability and controllability is higher in this concept.

Figure 19 Price- and Incentive-based DSM approaches (source: US Department of Energy (2006))

The price-based DSM measures use a price signal that varies over time. The following

price formation mechanisms can be distinguished (see US Department of Energy

(2006)):

Time-of-use: The prices vary within time blocks e.g. day and night tariffs.

Real-time-pricing: The prices are fixed with an hourly resolution and consum-

ers will be informed one day or one hour in advance.


Critical peak pricing: In general, this is the same mechanism as time-of-use

pricing, but in critical load situations, the price is replaced by a much higher

critical peak price.

Incentive-based mechanisms are classified as follows (see US Department of Energy

(2006)):

Capacity/Ancillary Services Programs: Consumers sell options for load re-

duction in advance which an administrator can use if needed. Consumers re-

ceive a payment for the provision and have to provide the required load reduc-

tion within a short time, e.g. an hour or sooner.

Demand Bidding/Buyback Programs: Load shifts are planned one day in ad-

vance and the bonus is determined as a function of the electricity price at the

electricity exchange.

Emergency Programs: The amount of the payment is derived from real-time

pricing, costs for production downtime or the value of electricity supply at that

moment.

Interruptible/curtailable Programs: Consumers have to pay lower electricity

costs if they reduce their demand independently.

Direct load control: An administrator has direct access on the control of con-

sumers’ loads and can turn them off spontaneously. Consumers are financially

rewarded.


5 Market design as an important non-technical flexibility “enabler

We focus in this chapter on market design as the most important non-technical flexibil-

ity “enabler. The section gives an overview of market designs that promote the expan-

sion of RES. On the one hand, the political decision-makers affect the expansion di-

rectly and the mix of RES by the choice of a specific support scheme. This in turn

causes the flexibility need. On the other hand, market design can have an influence on

the intensity of investment in flexible technologies as it can set incentives or facilitate

the market entry for flexibility options. Both, RES support schemes and market design

options for flexible energy systems are discussed in the following.

5.1 Support schemes for RES

The main reason for growing flexibility need lies within the rising share of RES. Among

others, the needed amount of flexibility depends on the mix of RES technologies within

a country. The geographical and climate conditions determine which mix of RES plants

will be built. Besides, the support schemes influence the mix of RES plants within the

market area because they can set financial incentives for investing in specific RES

types. Therefore, a short overview of different support schemes is given, following

IRENA and CEM (2015).

Tariff-based instruments provide economic incentives for electricity generation by

RES, awarded in the form of investment subsidies or as a payment for the energy gen-

erated. Examples include feed-in tariffs (FIT: fixed price for the remuneration of renew-

able energy fed into the grid) and feed-in premiums (FIP: payment to renewable energy

generation on top of the electricity market price).

Quantity-based instruments provide direct control over the amount of renewable ca-

pacity installed or energy produced. A renewable purchase obligation (RPO) is such an

instrument, imposing a minimum quota or a share of renewable energy production on

electricity suppliers, and is often supplemented by a renewable energy market allowing

for the trading of renewable energy certificates. Compared to tariff-based instruments,

quantity-based mechanisms offer better guarantees that the target will be met, but they

provide less assurance to project developers with respect to future cash flow, because

the latter bear the financial risk.

Hybrid instruments combine features of tariff- and quantity-based instruments. In auc-

tion-based mechanisms, both price and quantity are determined in advance of realising

the RES projects through a public bidding process. By this, auctions can be more effec-

tive than pure tariff or quantity-based instruments, providing stable revenue guarantees

for project developers (similar to the FIT mechanism), while at the same time ensuring

that the renewable generation target will be met (similar to an RPO). The bidding proc-

ess allows the determination of a price, and, with enough competition, the auction’s

result can be cost-effective.


Figure 20 shows the development of adopted support mechanisms from 2005 to 2014.

All three mechanisms have experienced growth during this time. Tariff-based instru-

ments are in 2014 still the most common types but the strongest growth is achieved by

auction-based instruments. There are some reasons for this development. The lower

costs of renewable energy technologies and the relative competitiveness to other elec-

tricity producers but also the priority of goals of policy design influenced the adoptions

of auctions. Countries that started early to adopt the tariff-based instruments had in-

creasing costs, so countries that decided to implement support schemes for RES later

on learned from the mistakes of the early adopters (see Elizondo-Azuela and Bar-

roso (2011); IRENA and CEM (2015)).

Developing countries accounted for many of the new adoptions in the period from 2010

to 2014. Budget limitations and the fact that affordability of energy is a key strategic

goal in many of these countries result in a preference for policies that facilitate the limi-

tation of support costs, while stimulating deployment (see Elizondo-Azuela and Bar-

roso (2011); IRENA and CEM (2015)). The auction mechanism has gained popularity

as an instrument to support RES and was adopted by more than 60 countries by 2015.

Figure 20 Number of countries clustered by RES support instruments (source: IRENA and CEM (2015))

5.2 Market design options for a flexible energy system

The design of market regulations can favour or hinder the use of flexibility options. The

following characteristics of the market design influence the flexibility potential in an en-

ergy system (see Papaefthymiou et al. (2014)).

Geographic market size: A huge energy system with an intense trade flow with

neighbouring countries allows sharing and an efficient use of flexibility resources. Be-


sides, the fluctuation of RES feed-in is lower if the geographical spread is higher and

climate characteristics vary within the system’s boundaries.

Market coupling: The precondition for market coupling is that neighbouring markets

are well connected by grid capacity and regulations exist as a basis for cross-border

trading of flexibility. Then, market coupling would mean that a common market area is

created that matches supply and demand for the whole region in the most efficient way.

So, the flexibility need of this common market area is typically substantially lower than

the aggregated need of the two single markets.

Prequalification standards: Market actors have to fulfil specific standards if they want

to participate in energy markets. These standards comprise technical characteristics

like minimum sizes of bids which are advantageous in order to simplify the trading

mechanisms. In order to encourage competition and the entrance of new players may

e.g. the entitlement for pooling of several small units contribute.

Scheduling times: Trading of electricity is divided into defined time blocks. It is devel-

oped historically that these blocks follow the supply pattern of fossil power plants in

many energy systems. As flexibility options provide flexibility in general for a shorter

time frame than conventional units, shorter operating periods would facilitate bidding

and market integration of these technologies. Consequently, shorter time periods could

favour bids from more flexible power units and from the demand side.

Gate closure: Feed-in by photovoltaic and wind is characterized by high fluctuations

and a difficult forcasting. In order create better market conditions for RES, trading rules

must be adapted. If feed-in of RES has to be reported a long time in advance, the fore-

casts show a higher uncertainty compared to a shorter lead time. So, a gate closure

that almost corresponds to real-time allows better forecasts and a smaller need for bal-

ancing reserves.

Capacity payments: Some flexibility options have small variable costs but high in-

vestment costs. This means that it could be difficult to get compensations that are high

enough to cover these capital costs. Capacity payments could help to incite investment

in these technologies.

Transparency: If the speed of trade activities increases because of shorter scheduling

times for bids or real-time pricing, it is important to offer information to market partici-

pants very fast. Furthermore, all market participants should have the same access to

important data. This ensures a fair competition, enables them to calculate their bids on

the actual data basis and should lead to an efficient electricity supply.


6 Summary and Conclusions

This report gives an overview of components and factors of influence that affect the

increasing need for flexibility in energy systems with growing shares of renewable en-

ergy sources (RES). Different flexibility options are presented and discussed. In this

context, flexibility was defined as the ability of a power system to balance variations of

supply and demand and to guarantee security of supply and system stability. It be-

comes clear that the need for flexibility results mainly from the fluctuating character of

power feed-in by wind and photovoltaic plants. However, the flexibility need of coun-

tries differs with regard to these factors: atmospheric conditions, geographic location,

grid connection to neighbouring countries, mix and regional distribution of RES plants.

By consequence, the flexibility need can vary amongst countries.

Various flexibility options exist that can be used for balancing supply and demand.

They differ with regard to their technical and economic characteristics. Some options

such as control of RES and fossil power generation or the use of batteries show short

reaction times and allow a quick adaption to the specific situation. Other technologies

like long term storage can be used to bridge long time spans with RES feed-in down-

turns. As there will be different challenging situations in the future energy systems, also

diverse flexibility options will be needed to respond to these situations. It can therefore

be concluded that a mix of technologies and concepts will be used in the future to re-

spond to the flexibility demand which will vary over different energy systems and RES

penetration rates.

In an early stage of RES deployment, operation management of fossil power plants,

power control of RES, intense use of existing storage and grid expansion will be ap-

plied. Through this, additional investment is avoided at an early stage of RES expan-

sion and the existing flexibility potential is exploited before new technologies or ser-

vices are used. With always increasing shares of RES in the system, Demand Side

Management, new flexible power plants and additional storage systems could become

necessary amongst others (see Figure 21). The order of flexibility options follows tech-

nical and economical criteria, e.g. efficiency and costs of the flexibility provision. So,

applications that show little losses and considerable low costs like Demand Side Man-

agement are used at an earlier stage than Power-to-Gas which has high conversion

losses and high costs.

However, new flexibility options are needed with increasing RES shares and new busi-

ness models will be required that stimulate investments in new flexible technologies

and services. Since there is a certain dynamic in the development of flexibility options a

flexible market design that rather tenders for service levels than technologies may be

the most adaptive response to this challenge.


Figure 21 Use of flexibility options in dependence of the RES share within an energy system (source: Krzikalla et al. (2013))

The need for investments into flexibility maybe substantially reduced by cross-border

cooperation, since the balancing effect in a large market is frequently a very cost effi-

cient means to improve the robustness of the grid. A harmonised energy policy could

further reduce the need for a rather cost-intensive expansion of flexibility options.


In order to activate the power of the market for the benefit of the system, the market

design should also ensure non-discriminatory access to the energy market for all flexi-

bility options. A complementary framework that sets adequate incentives for invest-

ments in flexibility options may consider strategic preferences but also improve invest-

ment security. RES support schemes should be developed in a way that they grant a

cost-effective expansion of RES and also consider the consequences of the RES build-

up for the flexibility need that could mean additional costs. Thus, the build up of RES

plants should be accompanied by a strategy that ensures that enough flexibility is pro-

vided for balancing the energy system and maintain system stability.


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Annex 1

The fluctuating feed-in of renewable energy sources is the main reason for the need for

flexibility. This chapter presents different RES technologies and their economic charac-

teristics. Furthermore, the contribution of RES to the provision of flexibility is discussed.

Overview of installed and planned RES capacities worldwide

The installation of RES plants is increasing worldwide. RES were the second-largest

source of electricity in 2014 behind coal (see IEA (2015)). A capacity of 147 GW RES

plants was installed in 2015, so the global capacity is estimated at 1.849 GW whereof

1.064 GW account for hydropower. This means that RES covered an estimated

amount of 29 % of the world’s power generation capacity at the end of 2015 and could

have covered approximately 24 % of the global electricity demand. Wind and photo-

voltaic together made up about 77 % of all RES capacity built in 2015 (see REN21

(2016)). Figure 22 illustrates that the share of RES technologies that is used for elec-

tricity generation differs much not only today but also in the future (according to the IEA

New Policies scenario, see see IEA (2015)). Figure 23 shows the distribution of RES

technologies across the world and selected countries. In some countries, a high poten-

tial of RES combined with a comparable low electricity demand lead to RES shares

above 60 %. However, in many industrialized nations that have high energy consump-

tion, RES shares lie below 30 %.

Figure 22 Development of RES technologies according to the IEA New Policies Sce-nario (source: see IEA (2015))


Figure 23 Share of RES corresponding to the electricity generation within countries (source: GeoCurrents (2012))

The reasons for the current success of RES lie within lower costs especially for wind

and photovoltaic because of technological advances, expansion into new markets with

better resources and improved financing conditions caused by ubiquitous low interest

rates as much as improved confidence of banks into these technologies. In favourable

circumstances, RES are cost-competitive with fossil power plants, e.g. wind power was

most cost-effective in many countries in 2015, including Brazil, Canada, Mexico, South

Africa and some more. Morocco was the world’s largest market for Concentrated Solar

Power (CSP) in 2015 (see REN21 (2016)). It is expected that the share of RES will

grow in the future, especially driven by a lot of potential in Asian countries as it is

shown in Figure 24. For a detailed description of the RES developments in different

regions see also: REN21 (2016).


Figure 24 Development of electricity by RES according to the IEA New Policies Sce-nario (source: see IEA (2015))

The transformation of the energy system can mean that a centralised supply system is

replaced by a more complex system with many decentralised generating assets. A key

challenge is the integration of RES feed-in e.g. by adapting the power grid and devel-

oping more flexible systems that are able to balance variable resources at reasonable

costs. However, it is also possible to build up a centralised RES supply e.g. wit CSP or

wind offshore plants. In this case, grid connections are needed that link these plants

with regions of high demand. But, in general, it means a transformation process for the

countries that decide to increase their RES shares. Policy makers should be aware that

this process has undeniable consequences for the whole economic sector.

Economical performance of different RES types

RES show different feed-in patterns that are influenced by a variety of factors. Feed-in

of wind and photovoltaic plants depend mainly on wind and solar radiation which

causes a very fluctuating feed-in pattern for wind and a variable but more regular day-

and-night-pattern for photovoltaic. Hydropower has an approximately constant power

generation if no seasonal water scarcity occurs and the electricity output of biogas

plants can be controlled if a biogas storage system exists.

The weather conditions do not only affect the hourly feed-in patterns of wind and

photovoltaic plants but also their full load hours and thus their cost-effectiveness.

Therefore, the selection of the location is crucial for the output of RES plants and

southern countries with high solar radiation focus on photovoltaic installations whereas

windy locations can be found often at the coast. Therefore, a global comparison of

electricity generation costs is not as easy as for fossil power plants, because the local

weather potential has to be included in the calculation. Figure 25 and Figure 26give an


overview of regional investment costs of different power plants and the resulting costs

of electricity. It becomes clear that there are broad cost ranges for a single technology

even in one region as the output of a RES plant depends on the geographical condi-

tions. In all regions, hydro, wind onshore and photovoltaic show relatively low installed

costs. With regard to electricity costs, especially biomass, hydro, geothermal and wind

onshore plants are in most regions able to compete with fossil fuels.

Figure 25 Total installed costs of utility-scale RES technologies by region in 2013/14 (source: IRENA (2015))


Figure 26 Cost of electricity by region for utility-scale RES 2013/14 compared to fossil power plants (source: IRENA (2015))

Documents

Flexible energy system building blocks...The increased use of renewable energy sources (RES) as well as the increase of en-ergy efficiency is crucial for the achievement of climate